Thursday February 23 2012

Tullow to sue URA over oil tax money

Brian Glover and Allen Kagina

Brian Glover and Allen Kagina  


A day after selling 67 per cent of its oil shares, Tullow Oil is contesting Uganda Revenue Authority’s calculation of the tax due from the transaction.

URA has assessed a capital gains tax of $472 million on Tullow’s farm-down to Total and Chinese firm Cnooc.

However, while Tullow agrees with the principle that the transaction attracts capital gains tax, it is expected to claim exemptions on one block and the calculations on two others.

Tullow spokesperson Jimmy Kiberu said yesterday that the firm has paid $141m out of the $427m assessed and would now challenge the tax bill in local courts.

“By paying 30 per cent of the assessment we are now entitled as a Ugandan taxpayer, to appeal the full assessment at a tax tribunal in Kampala,” Mr Kiberu said.

This will be the second capital gains tax between URA and oil companies. The first was the $404 million contest between Heritage Oil and URA which In the above case, the Tax Appeals Tribunal of Uganda last year ruled in favour of URA stating that URA’s valuations were right and that the oil company should have paid the tax.

A key difference is that while Heritage challenged the principle of paying tax on selling its 50 per cent stake in the oil fields to Tullow for $1.5 billion, Tullow will seek to pay less than what has been assessed.
The 30 per cent deposit paid is a legal requirement in order to challenge the assessment before the Tax Appeals Tribunal.

A case is currently underway under an arbiter in London between the government and Heritage, which contests its tax bill and could set a legal precedent.

President Museveni has previously said Tullow would have to pay tax before being allowed to sell its stake. However, it is not clear whether there was a change in heart in the government.

Energy Minister Irene Muloni could not be reached by press time but the Ministry’s spokesperson Mr Bukenya Matovu, said: “I am not worried about what someone says but what the law says. If they have any dissatisfaction there are mechanisms to lodge their complaints.”she said.

The Income Tax Act of Uganda provides that if someone is not contented with URA’s assessment of the capital gains tax, they have to pay 30 per cent of URA’s assessed figure and then take the complaint to the courts of law, or a tribunal.

Tullow has been opposed to the tax bill since April and indicated its intentions to contest it in a memorandum of understanding signed then with the government.

Protazio Begumisa URA’s assistant commissioner for compliance management in the domestic taxes department said Tullow has a right to appeal against the assessment.

“Taxpayers are free to accept or reject our assessment but they must first pay 30 per cent of the assessment then they can contest in court because the law provides that where there is a dispute, you first pay 30 per cent of the tax and then proceed to court.”

When an email was sent to Tullow to explain how much they want to pay in capital gains tax and to further explain their contention on Exploration Area 1, 2, 3A, Mr Kiberu replied saying: “These issues will be the subject of the tax tribunal as the appropriate forum to disclose them. We are acting entirely in accordance with Ugandan tax laws and are exercising our rights as a Ugandan taxpayer to appeal the CGT assessment.”

At a first glance, if the London case takes the direction that the Tax Appeals Tribunal has, then URA would have dealt Heritage and Tullow a final body blow but the judges in London could choose to interpret the facts differently and rule in favour of the oil giant.

In appealing before the Tribunal, however, Heritage Oil challenged the tax assessment on grounds that the proceeds it earned from the transaction with Tullow Oil were not taxable in Uganda.

The firm also argued that the sale of assets took place outside Uganda, in the Channel Islands, off the coast of France, and that the company filed its tax returns in Mauritius.

The Tribunal disagreed noting that the oil fields were located in Uganda and that in order for the sale to go through, there was need to obtain consent from the Uganda government.